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Subject Author Date
Self employment tax on interest income?? RS 03-27-2008
Posted by RS on March 27, 2008, 11:16 pm
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 Hi all,

I have lent some money to a friend, who pays me interest on the money.
He sends me a 1099-misc form, and files a copy with the IRS. I declare
that as interest income on line 8a of 1040 and on schedule B. I just got
a notice from IRS that I haven't paid self-employment tax on this
income (social security tax not withheld). I am not sure if this is
correct or not. I am not a self-employed person. I have a regular job
for which I receive W2 form and pay regular employee tax. Is the
interest I receive considered self-employment income? Do I need to pay
social security tax on it?

Thanks,
RS

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Posted by Phil Marti on March 28, 2008, 4:25 am
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 "RS" wrote:

> I have lent some money to a friend, who pays me interest on the money.
> He sends me a 1099-misc form, and files a copy with the IRS.

Why? Did anyone look at the 1099 instructions to see if this was correct?
Hint: it isn't.

> I declare
> that as interest income on line 8a of 1040 and on schedule B. I just got
> a notice from IRS that I haven't paid self-employment tax on this
> income (social security tax not withheld). I am not sure if this is
> correct or not.

It's not. Your inventive friend is reporting this an Nonemployee
Compensation in Box 7 of the 1099-MISC. Because of budget cuts IRS fired
all their psychics and have to go with what they're told.

> I am not a self-employed person. I have a regular job
> for which I receive W2 form and pay regular employee tax. Is the
> interest I receive considered self-employment income? Do I need to pay
> social security tax on it?

No. You need to respond to IRS and tell them about the erroneous 1099-MISC.
You also need to suggest to your firend that he knock it off.

--
Phil Marti
Clarksburg, MD

--
<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2007) - All rights reserved. >>
<< ------------------------------------------------------- >>

Posted by Tony Cox on March 28, 2008, 10:57 am
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> "RS" wrote:

> > I declare
> > that as interest income on line 8a of 1040 and on schedule B. I just got
> > a notice from IRS that I haven't paid self-employment tax on this
> > income (social security tax not withheld). I am not sure if this is
> > correct or not.
>
> It's not. Your inventive friend is reporting this an Nonemployee
> Compensation in Box 7 of the 1099-MISC. Because of budget cuts IRS fired
> all their psychics and have to go with what they're told.
>
> > I am not a self-employed person. I have a regular job
> > for which I receive W2 form and pay regular employee tax. Is the
> > interest I receive considered self-employment income? Do I need to pay
> > social security tax on it?
>
> No. You need to respond to IRS and tell them about the erroneous 1099-MISC.
> You also need to suggest to your firend that he knock it off.

Sounds like your friend should have filed a 1099-INT instead.
Penalties for non-filing are detailed in Section O of the General
instructions for form 1099.

--
<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2007) - All rights reserved. >>
<< ------------------------------------------------------- >>

Posted by Phil Marti on March 28, 2008, 1:15 pm
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"Tony Cox" wrote:

> Sounds like your friend should have filed a 1099-INT instead.
> Penalties for non-filing are detailed in Section O of the General
> instructions for form 1099.

Unless the payment was in the course of the payor's trade or business a
1099-INT is inappropriate. See the 1099-INT instructions.

See the Schedule A instructions for reporting home mortgage interest paid to
an individual.

If this is just A loaning money to B for B's personal use, there's no
reporting by the payor.

--
Phil Marti
Clarksburg, MD

--
<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2007) - All rights reserved. >>
<< ------------------------------------------------------- >>

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